Government rethinking decision to tax premium international travel

The finance ministry is considering a proposal from airlines in India to remove service tax on first and business class travel to international destinations. Airlines have argued that removal of service tax on these heads would help them manage their costs better while reducing the ticket prices. Service tax burden increases the cost of international travel in the first and business class by 12.24 per cent. The industry has also demanded removal of service tax imposed on landing, airport and air navigation charges. According to industry sources, the Federation of Indian Airlines has said such a tax is not a global practice, and it puts India at a disadvantage as a connecting point to other countries.

The tax reduces the competitive advantage of Indian carriers vis-à-vis their overseas counterparts who can price their tickets relatively cheaper since they do not have to pay the service tax on business class tickets. According to Finance Act 2006, the definition of 'taxable services' includes 'fare charged' to business class and first class passengers embarking on international journeys from any customs airport in India. Domestic airlines have also cited logistical and technical difficulties in implementing the tax. The service tax provision is logistically difficult to implement as fares charged and passenger routings, both domestic as well as international vary. There are also logistical and technical complexities with connecting passengers.

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